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Japan’s youngest billionaire loses $702 million after stock rout

Yoshikazu Tanaka, Japan’s youngest billionaire and founder of Gree Inc., lost $702 million today after his social-gaming company plunged by the daily limit in Tokyo on concerns one of its sales methods may be illegal.

Yoshikazu Tanaka, Japan’s youngest billionaire and founder of Gree Inc., lost $702 million today after his social-gaming company plunged by the daily limit in Tokyo on concerns one of its sales methods may be illegal.

Japan’s second-biggest operator of social games fell 500 yen, or 23 per cent, to 1,651 yen, the biggest drop since its December 2008 listing, according to data compiled by Bloomberg. That wiped out 56.1 billion yen ($702 million) from the value of the 35-year-old Tanaka’s shareholding, based on calculations by Bloomberg.

Gree led drops among Japanese game-related companies. The Consumer Affairs Agency is considering whether a sales method called “complete gacha” violates the law, Kazuyuki Katagiri, a section chief at the agency, said by phone today. The Yomiuri newspaper said May 5 the agency will ask social-network game operators to stop using the system because it prompts customers to pay excessive fees.

“The companies may need to change their business models,” Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo-based hedge fund, said by phone. “Companies shouldn’t rush to expand, as the very existence of social games is being questioned and that would deter some investors.”

Tanaka was the youngest billionaire in Japan with an estimated fortune of $3.5 billion, Forbes magazine said in March. His 48.18 per cent stake in Gree is worth $2.32 billion after today’s rout.

‘Complete Gacha’

Shinichi Iriyama, a spokesman for Gree, declined to comment on the report and the share decline by phone today.

DeNA Co., the country’s biggest social-game operator, plunged by its daily limit of 500 yen, or 20 per cent, to 1,990 yen. Tomoyuki Akiyama, a spokesman for DeNA, declined to comment on the report by phone.

Other video-game software makers fell in Tokyo trading because an agency order may hinder their efforts to expand in social games, said Makoto Sengoku, a Tokyo-based market analyst at Tokai Tokyo Securities Co.

Konami Corp., the maker of “Metal Gear Solid” games, slumped 18 per cent, the biggest drop in more than a year, to 1,890 yen. The company said in March it agreed to publish its games on social-network game maker Zynga Inc.’s new platform.

“The market for social games may shrink if the warning is issued,” Sengoku said. “This would ruin profit pillars.”

Namco Bandai Holdings Inc., the creator of “Pac-Man” games, declined 9.5 per cent to 1,030 yen. Capcom Co., the maker of “Biohazard” games, fell 6.6 per cent. CyberAgent Inc., the operator of Ameba social-networking site, had the biggest drop in more than nine years, falling 20 per cent to 203,000 yen.

Most Shorted

Gree was the most-shorted stock in Asia, according to data compiled by Bloomberg. Short interest as a percentage of free float was 27 per cent before today’s move.

The “complete gacha” system charges players about 300 yen apiece for virtual items that can be collected and converted into a rare item once a certain combination is obtained. The system may violate the law through unjustifiable premiums and misleading representations, according to the Yomiuri report.

The ban could reduce Gree’s net income by 18 per cent and DeNA’s by 6 per cent, said David Gibson, a Tokyo-based analyst at Macquarie Securities Ltd., who has an underperform rating on both companies.

Gree forecast net income may total between 44 billion yen and 50 billion yen in the year ending June 30, the company said Feb. 2. DeNA estimated the profit of 32.6 billion yen in the year ended March 31, it said Feb. 7.

High Charge

In one incident, a user’s charge totalled 4 million yen in two months playing games with the sales system, according to the minutes of the Consumer Affairs Agency’s panel meeting in February. Some users also put up rare virtual items on auction sites, the panel said.

The consumer agency plans to issue an opinion on the system “soon,” Katagiri said. The government hasn’t decided on the details of the order, he said.

Amid growing criticism, six operators, including Gree and DeNA, said they were working to improve the gaming environment. That included a ban on the “real money trade,” where users sell those rare items to other players, the companies said April 23.

On April 1, Gree began limiting monthly fees for users who are 19 years old or younger.

Japan’s social-gaming market may expand 33 per cent from a year earlier to about 343 billion yen this fiscal year, Yano Research Institute Ltd. forecast in January. That would be almost 70 times the 4.9 billion-yen market in 2008, according to estimates by the researcher.

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